Three targets risk-based insurance

Three is looking to launch an innovative risk-based mobile phone insurance package offering customer incentives such as no claims bonuses in a bid to cut fraudulent claims.

The move comes after the operator stopped offering contract insurance earlier this year after being hit by a significant rise in false claims.

Insurers are at the second stage of a bidding competition launched by Three which calls for the provision of an innovative form of contract insurance based on risk mitigation. This would see customers with no history of previous claims rewarded with lower premiums and other incentives, similar to generic insurance schemes.

Three is hoping that a risk-mitigated insurance package for contract deals will cut the high rates of mobile phone insurance fraud, particularly opportunistic claims, which are estimated to account for around 80% of fraudulent claims in the UK. The package would reward customers who do not claim with lower premiums and require customers with a claims history to pay higher premiums.

Three previously offered contract insurance via Lifestyle Services Group (LSG), part of the Phones 4u Group owned by private equity house BC Partners. Earlier this year Phones 4u reported that the rise in smartphone claims at LSG had impacted on the group’s profits.

When Three pulled out of offering insurance in May it said it was a temporary measure while it reviewed its insurance products and processes.

This week it confirmed it has put a contract for a new insurance product out for tender but declined to reveal further details. A spokesman said: ‘We plan to return to the market with an insurance product that supports and reflects our brand, offering peace of mind, ease of access and clear value.’

Analysts said a risk-based insurance scheme for mobile phones would need to be supported by a data sharing scheme, backed by insurance houses, retailers and operators.

Dario Talmesio, principal telecoms analyst with Informa Telecoms & Media, said: ‘Risk-based insurance schemes make sense but if the scheme is to be at all feasible the industry would need to share information about the risk of customers, as happens with car insurance, and that level of information sharing does not exist in the mobile phone industry yet.’

Talmesio added that shorter smartphone contracts would be more likely to cut fraud levels in the UK.

Insurance claims can rise dramatically when new high-end smartphones are released, with one insurer reporting a 300% rise in the weeks before the release of the iPhone 4S.

Talmesio said: ‘The pressure of having the latest device is greater than ever, but customers in the UK are tied into very long contracts which give the incentive for opportunistic fraud. Operators should look at providing early upgrades when new smartphones are released, as well as developing risk-based insurance schemes.’